Novartis CEO: The Age Of Massive Blockbuster Drugs Is Over

YouTube/WEFThe business model for large pharmaceutical companies hasn't changed for decades.

You target a huge population, like people with heart disease, find and patent a drug that's at least marginally better than current treatments, and make billions. It's worked pretty well for a long time.

Now, many blockbusters are losing patent protection, huge companies are losing billions in sales to generic competitors, and despite massive research spending, have few new drugs that look like they will replace ones with expiring patents. And competition is so fierce for blockbuster markets that its easy to sink billions into research that produces nothing.

Companies used to be able to slightly tweak blockbusters and sell them as a new treatment, extending their lifetime by years. The Affordable Care Act has made that strategy more difficult, as new drugs that don't significantly outperform what's already available won't be reimbursed by insurance.

In an interview with Fortune, Novartis CEO Joseph Jimenez argues that the solution is to entirely reinvent big pharma's business model, saying that "the definition of a blockbuster is changing."

His solution? Hopefully, to produce more new drugs for smaller segments rather than chasing big markets.

The company plans to do that by attacking disease pathways, the biological processes. That way, you get a drug that, while designed for kidney cancer, is also helpful to patients with certain lung or breast cancers.

That's what happened with Novartis' Afintor. As a kidney cancer treatment alone, sales don't hit $1 billion. But across all its uses, the drug is something of a blockbuster in its own right.

Finding multiple uses for one drug isn't new, but those discoveries were often accidents. Specifically targeting research at pathways could lead to a different types of blockbuster in the future. Still, getting one drug approved is a near miracle, and getting something approved for multiple diseases requires a new battery of trials.

The hope is that this will be good for patients, in that more varied medicines will be released, and it will be good for the company because losing a single drug won't kill the company's sales.

The concern is that investors, used to the blockbuster model, will be skeptical and won't give companies the time they need.

It's a difficult shift for a business that's gotten so used to living off of wildly profitable mega-hits, but it may be necessary for those companies that want to be around in the long run.